CIVIL LAW & MOTION

Rancho Ynecita Owners Assn. v. Nicholas

Case No:

16CV01868

Hearing Date:

Tue Feb 13, 2018 8:30

Nature of Proceedings: Defendant's Demurrer to the Second Amended Complaint

Background

Plaintiff, Rancho Ynecita Owners Association (“the Association”), complained against Defendants, James and Yvonne M. Nicholas (“Defendants”) (as individuals and co-trustees of the trust that owns subject real property) for breach of contract and nuisance arising from the use of Defendants’ property as a short term rental unit. On May 30, 2017, Defendants’ demurrer to the First Amended Complaint was sustained as to the breach of contract cause of action on all four theories of breach that were presented, and overruled Defendants’ Demurrer to the second cause of action for nuisance. Due to Association’s attorney being late to the hearing, and the Defendants’ attorney already having departed the hearing, Plaintiff filed a motion for relief that was denied, because the Court had granted leave to amend on the breach of contract claim on all four theories. The Association filed a Second Amended Complaint, and Defendants’ again demur.

Judicial Notice

The Court reviewed Defendants’ request for judicial notice and Plaintiff’s objections to those requests. The Court overrules Plaintiff’s objections, finding no merit in them, and grants Defendants’ request. Not only are the documents judicially noticeable by express language in Evidence Code 452, but the legal effect of the orders made in the documents are relevant to the issues presented in the demurrer, and particularly relevant to determine whether Plaintiff made any significant changes to the allegations in the Complaint that the Court previously ruled were insufficient to state a claim.

Breach of Contract

As stated in the Court’s minute order of May 30, 2017, Defendants’ attack on Plaintiff’s first cause of action focuses on the element of breach. There is no dispute that the allegations sufficiently pleaded existence of a contract, performance by Plaintiff, or damages.

The contract at issue is the Conditions, Covenants, & Restrictions (“CC&Rs”) attached to the Second Amended Complaint (“SAC”) at exhibit A, and the four amendments to that contract in subsequent exhibits. The original CC&Rs were established August 28, 1975. The first amendment occurred November 11, 1987, the second amendment January 31, 1989, the third amendment on March 9, 1992, and the fourth amendment March 30, 2016.

The allegations in the First Amended Complaint (“FAC”) outlined four different uses of the subject property that allegedly breach the CC&Rs contract. The SAC alludes to the same four uses, but only cited three articles of the CC&Rs that Defendants allegedly breached:

Using the property for business, commercial, or industrial purposes that are inconsistent with the normal use of property within a residential ranch neighborhood. (SAC, ¶ 33 [citing CC&R,Article IV, ¶ G].)

Offensive activities and anything which is an unreasonable annoyance or nuisance to other owners (Id.[citing Article X, ¶ D].)

Rental of the property for a term of less than 30 days (Id.[citing Article IV, ¶ 6].)

Like the FAC, Plaintiff’s allegations in the SAC summarized the uses above by claiming the breaches occurred by Defendant frequently renting the “second unit” on its property “as a vacation and short-term rental property.” (SAC ¶ 14.) However, that summary, and the arguments supporting it, were all rejected by this Court when it sustained Defendants’ demurrer to the FAC. Although the Court graciously allowed Plaintiff to amend one last time, Plaintiff’s amendment to the FAC has not allege sufficient new facts to overcome the defects explicitly pointed out in the Court’s prior ruling. In fact, the SAC was nearly a word-for-word copy of the FAC, and the new allegations it did contain were merely a thinly veiled attempt to re-argue the merits of the case that were previously ruled upon at the first hearing. The Court again addresses each in turn.

“Business Use” and “Less than 30 Days”

Like the FAC, the SAC contains an allegation that Defendants’ use of the subject property as a short term rental violated the CC&Rs, because such a rental is a business, commercial, or industrial purpose that is inconsistent with the normal use of property within a residential ranch neighborhood, and cannot be rented at all for less than 30 days. (SAC, ¶ 33 [citing CC&R, Article IV, ¶ G].) Article IV, ¶ G in the CC&Rs reads as follows:

It is the intent and purpose that the tract and all the lots therein shall be used only for residential-ranch purposes and shall not, therefore, be used for any business, commercial or industrial purposes which would be inconsistent with such a residential-ranch neighborhood.

(Ibid.)

As stated in the Court’s September 5, 2017 minute order, “the term “business use” is not defined by the CC&R contract, and the drafter of the original CC&R contract does not seem to have contemplated rental or lease of the property as a business use, due to language on the first page of that document showing leasing and renting as approved forms of use subject to the CC&Rs. (SAC, exh. A, at p. 1.) The Court pointed out the Association could show the existence of an ambiguity in the term “business use” by offering reasonable, alternate interpretations, and pointed out that an advocate of an ambiguous contract term bears the burden of alleging parole evidence that supports the alleged interpretation. (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1128 [“On a demurrer, the court must consider the sufficiency of the allegations, including any parol evidence allegations, to determine whether the contract is reasonably susceptible to plaintiff's alleged interpretation.“].)

In an attempt to offer a reasonable interpretation of “business use” and “residential ranch purposes,” a term that the Association’s interpretation of business use heavily relies upon, the SAC offered parol evidence merely by including a citation to language in the fourth amendment to the CC&Rs that attempts to clarify what the “business use” term in the original CC&Rs means, as well as the “residential ranch” term. (SAC, ¶ 5.) This thinly veiled attempt to reargue the merits of the last demurrer fails, because the Court previously ruled that exact interpretation and exact evidence did not create a reasonable interpretation of the CC&Rs:

. . . the term “business use” is not defined by the CC&R contract, and the drafter of the original CC&R contract does not seem to have contemplated rental or lease of the property as a business use, due to language on the first page of that document showing leasing and renting as approved forms of use subject to the CC&Rs. (FAC, exh. 1, at p. 1.) . . .

Likewise insufficient is any factual reliance on the contract term: “normal use of property within a residential ranch neighborhood.” That term also was not defined in the CC&R contract, nor sufficiently defined in any amendment. There was a poor attempt to define the term by a negative in the fourth amendment to the CC&Rs: "Residential-ranch purposes" as stated herein does not include the rental of all or any portion of a lot for a term less than thirty (30) days." However, this negative-only definition leaves too much to speculation . . . and the Court cannot rely on an alternate interpretation of the subject contractual language that was not offered by Plaintiff. (SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83 [Where complaint allegations conflict with the pleading exhibits, courts adopt the truth of the contents of the exhibits, unless the exhibits are ambiguous, in which case courts accept the interpretation offered by plaintiffs.]) Furthermore, the attempt to define the term occurred in the fourth amendment, which is inapplicable due to the application of Civil Code section 4740, as discussed above.

(Min. Order, Sep. 5, 2017.)

The Association also pointed to parol evidence in the form of several Santa Barbara County Code sections that contain the term “guest ranch,” and define that term as “[a] vacation resort, generally a farm or ranch, that derives all or part of its income from the use of its facilities by paying visitors or guests, and provides food, lodging, and recreational activities.” (SAC, ¶ 7 [citing Santa Barbara County Code].) However, not only does the Association fail to precisely allege how that definition relates to activities related to short term rentals, the Association also failed to allege that Defendants’ activities matched that of the guest ranch definition. More specifically, the Association failed to allege, nor has it ever alleged, that Defendants offered food and recreational activities in addition to “lodging,” if that term can even be used congruently to describe short term rental activities.

The Association also inserted new allegations in the SAC that contain no new facts, but are a legal argument that Civil Code section 4740 does not apply to the fourth amendment to the CC&Rs. (SAC, ¶ 3.) Plaintiff reasons the statute does not apply because the fourth amendment merely “restricts” the rental and leasing of property within the association, and section 4740 only protects landowners like Defendants from rental or leasing clauses in governing documents that “prohibits” those activities. In simple terms, the Association argues restrictions are not prohibitions that are targeted by the statute, because leasing and rental activity can occur for periods longer than 30 days.

The Court is not persuaded. Restrictions are a prohibition on use of property, even if they do not fully restrain a landowner’s ability to use the property completely as one sees fit. The language of the statute expressly forbids any prohibition on leasing and rental activity, no matter how small, and any interpretation to the contrary must be interpreted in favor of a reservation of rights, not a restriction of them, especially since the statute was enacted to protect the rights of landowners. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 378-379 [The words of the statute must be considered in context, keeping in mind the purpose of the statute].)

Since the Court already ruled on the plain meaning of “business use” and “residential ranch purposes” in the previous ruling, and since no parol evidence offers a reasonable interpretation of the term “business use” and “residential ranch purpose” as a restriction on the specific short term rental activities that Defendants conduct on their property, the Court sustains the demurrer to the first and third theories of breach.

“Offensive Activities”

As pointed out in the Court’s previous ruling on the demurrer to the FAC, Plaintiff’s nuisance per se theory of breach under Article X, paragraph D of the original CC&R contract (SAC, ¶¶ 5-6) fails if no other theory of breach survives. Plaintiff made no new allegations in the SAC to overcome this fatal flaw, and Plaintiff again admits in the SAC that this theory is wholly dependent on the other theories of breach. (SAC. ¶ 5.) Since no theory of breach is sufficiently pleaded, the Court again concludes this theory is also insufficiently pleaded.

Therefore, no theory of breach survives the demurrer. This is Plaintiff’s third attempt at amendment, and Code of Civil Procedure section 430.41, subdivision (e)(1) prohibits further amendment hereafter without more than is currently before the Court. The Court sustains the demurrer to the first cause of action without leave to amend.

Nuisance

The Court previously overruled Defendants’ demurrer to the second cause of action for nuisance. Since the SAC does not contain a substantial alteration to that cause of action, Defendants’ current demurrer to that claim is also overruled.

This is not the end of the matter, however. Defendants allege that a Fifth Amendment to the CC&Rs was passed on May 16, 2017 that “reversed prior to [sic] CC&R amendments which prohibited renting residential units separately from the primary residence” (Demr. ¶ 7), the Court is willing to entertain a motion for judgment on the pleadings, if that motion reproduces the fifth amendment in its entirety, through judicial notice, and is accompanied by argument focusing with laser-like precision on how the amendment impacts the nuisance claim. The Court is also willing to entertain a motion to dissolve the preliminary injunction, based on the fifth amendment to the CC&Rs.